Yoweri Museveni, Africa’s longest-serving president, has been sworn in for a seventh term in Kampala, extending his 39-year grip on power. The ceremony, staged amid heavy security and boycotted by the opposition, drew sharp rebuke from the United Kingdom, which called for “urgent democratic reforms” in the East African nation. For the markets, the event is a reminder of the political risk premium embedded in Ugandan sovereign bonds: a country that borrows in international capital markets but governs with an iron fist.
Museveni, 79, claimed 58.6% of the vote in January’s election, a result dismissed by the opposition as fraudulent. The UK Foreign Office issued a statement “condemning” the crackdown on dissent and applauding “the bravery of Ugandans who stood for democratic values.” Yet London’s moral outrage rings hollow. The City has been a willing buyer of Uganda’s Eurobonds, most recently a $1 billion issuance in 2021 at a yield of 5.875%. Investors were happy to overlook governance concerns for a decent spread over Gilts.
But the cost of political stability under a rubber-stamp parliament is mounting. Inflation is running at 7.2%, the highest in a decade, and the shilling has lost 5% against the dollar this year. Capital flight is a growing worry. Wealthy Ugandans are moving money to Nairobi and Dubai. Foreign direct investment has stalled outside extractive industries. The UK’s call for reform is unlikely to change Museveni’s calculus. He knows that international lenders care more about repayment than rights. The IMF recently approved a $1 billion extended credit facility, despite concerns over the government’s fiscal profligacy.
Gilt yields in London are rising, and with them the cost of borrowing for frontier markets like Uganda. The 2031 Eurobond is yielding close to 12%. That’s a 600 basis point premium over US Treasuries. The market is pricing in a higher probability of default, or at least a restructuring. Museveni’s new term will be defined by this debt overhang. The government spent 45% of revenue on interest payments last year. Crowding out productive spending. The UK’s moral suasion won’t pay the bills. What would? Opening the economy, curbing corruption, and letting the central bank be independent. But that’s not how power is consolidated in Kampala.
The bottom line: Uganda is a textbook case of the tyranny of institutions. The longer the president stays, the weaker the rule of law becomes. And the higher the risk premium demanded by investors. The UK can talk about democracy, but the real discipline comes from the bond vigilantes. Until they get a haircut, Museveni will keep winning elections. And the City will keep lending him money.
